Owo- Sampson v Barclays Bank Plc & Anor (No. 2)

This is an appeal by Mr. Owo−Sampson against the decision of Mr. Registrar Jacques in this matter. Before I deal with everything, it would seem sensible to give a rather short chronology in this case, because it has a certain tortuous history.

The story really starts with the fact that Mr. Owo−Sampson is a former customer of Barclays Bank Plc −− who I will refer to as "Barclays" or as "the Bank". As part of that relationship, Barclays had granted him a mortgage on property which ultimately Barclays sold over his head, with the result that Mr. Owo−Sampson was gravely disappointed with the amount which Barclays had obtained on the sale; and in October 1994 he commenced proceedings against Barclays Bank.

Not surprisingly, given that particular situation, the relationship of banker and customer did not subsist for very much longer, if at all, and Mr. Owo−Sampson − who was also the owner of a property which features largely in these proceedings known as number 17A Glebelands Avenue, London, E18 − arranged to have that property mortgaged to the Bank of Scotland. The type of mortgage which he arranged is in many ways at the heart of this litigation. It was a mortgage which contained these terms: the property was valued as at the date of this Bank of Scotland mortgage at £190,000 in or about June of 1997.

The Bank of Scotland instead of charging interest took out a share in the appreciated value of the mortgaged property, thus 71% of any appreciation over and above £190,000 belonged to the Bank of Scotland.

Mr. Owo−Sampson's proceedings against Barclays Bank came on for trial before Mr. Martin Collins QC, who was sitting as a Deputy Judge of the Queen's Bench Division. He gave Mr. Owo−Sampson judgment against Barclays Bank for the sum of £25, but there had been a payment into court in excess of that sum, and the result was that Barclays were given the benefit of an order for costs as against Mr. Owo−Sampson, presumably from the date of payment in, and on 18th July 1997 those costs were taxed at some £46,386 and some pence.

On 16th January 1998, Barclays obtained a charging order on number 17a Glebelands Avenue in the sum of £46,386 plus interest and plus the cost of obtaining the charging order, because the taxed costs had not been paid.

Barclays had, in the meantime, obtained a valuation on the property from agents called Taylor Harvey, which was a drive−by valuation, and valued the property at £145,000.

On 26th January 1998, Barclays issued and served on Mr. Owo−Sampson a statutory demand. In the statutory demand they valued their charge as being likely to produce some £20,000. The way they had done that was to take the £145,000 valuation which they had obtained from Taylor Harvey. They took off £135,000, which was the money owed in any event to the Bank of Scotland, thus giving a margin of £10,000. And to be on the safe side they gave a margin of £20,000 to the value of their charge. Thus the statutory demand was for some £27,483 and some pence, that being the part of the order for costs which was, they said, not going to be covered by their charge.

There was a hearing to set that statutory demand aside, which was dismissed, and a bankruptcy petition was presented by the bank on 16th April 1998 for the sum of £27,483−odd.

On 2nd June, despite efforts by Mr. Owo−Sampson, a bankruptcy order was made. Mr. Owo−Sampson at this time was acting in person.

On 3rd August 1998, Mr. Owo−Sampson applied under section 282 of the Insolvency Act, to annul the bankruptcy order.

There has been a long and tortuous hearing of the various applications to annul the bankruptcy order. I do not think I need go into them, save to say this: that on 21st May of this year the Court of Appeal allowed an appeal to it by Mr. Owo−Sampson and held that the bankruptcy order ought not to have been made, but did not choose to exercise any discretion which was vested in the court by virtue of section 282. Thus it is perhaps sensible if at this point I read into this judgment the provisions of section 282 of the Insolvency Act:

As a result of the Court of Appeal's decision, it has been decided that as at the time when the bankruptcy order was made, namely on 2nd June 1998, it ought not to have been made. The reason for that decision was a very simple one: and that is that further valuation evidence has been obtained (or put before the court rather than obtained) as well, which indicates that as at the date of the bankruptcy order, the bank was fully secured. Thus there was no unsecured debt owing to the bank. The bank had not sought to give up its security and thus, in the circumstances, the bankruptcy order ought not to have been made.

In considering that matter the Court of Appeal came to the conclusion that the material which was before it in May of this year was not sufficient to enable that court to exercise its discretion and to decide whether either to annul the bankruptcy order or to refuse to do so. And it remitted the matter back to the bankruptcy registrar to consider that matter.

Since the Court of Appeal's hearing, there has been put in evidence (between the date of that hearing and the judgment of Mr. Registrar Jacques, which is the matter appealed against, and that was given on 12th August of this year) simply one witness statement of Mr. Owo−Sampson, to be found under tab number 55 in the trial bundle, that being dated 21st July 2003. It is something like four pages long and really adds very little to the material that was before the Court of Appeal.

In giving his judgment in the matter, the learned Registrar concluded that he ought not to annul the bankruptcy order. He did so for a number of reasons. It is right to say that when the Court of Appeal gave its decision, it was made abundantly plain by its decision that the bankruptcy order when it was made was properly made on the material presented to the bankruptcy court in June of 1998. Lord Justice Carnwath, in giving the judgment of the court, at paragraph 35 of his judgment said that −−

The way in which Mr. Owo−Sampson suggested he would be able to do that was that he would be able to re−mortgage number 17A and that thus, by means of a remortgage − which did not mean going to the Bank of Scotland and getting more money from them, but going to a third party lending institution − he would, he believed, be able to pay off the Bank of Scotland and pay off Barclays Bank in full.

The only material which was before the Registrar in that regard was some material which Mr. Owo−Sampson had been able to provide from First Equity Mortgage Corporation, which indicated that they might be prepared (might be prepared) to grant him a mortgage on the security of number 17A.

There is a problem with that because, of course, as things stand Mr. Owo−Sampson is bankrupt, and number 17A Glebelands Road is not his property to mortgage; it is now vested in his trustee in bankruptcy, who is the second defendant in this matter. Thus he would not be able to raise the money from First Equity Mortgage Company until he had had the bankruptcy order annulled, because of course on the annulling of the bankruptcy order the property would re−vest back in him. But in order to exercise the power to annul, as Carnwath LJ put it, the court would have to be satisfied as to his prospects of being able to satisfy the petitioner and meet his other liabilities. One is presented immediately, in this particular situation, with a horse and cart problem.

The problem becomes even more complicated in view of the nature of the Bank of Scotland mortgage. Anything over and above £190,000 by way of appreciation in value belongs as to 71% to the Bank of Scotland, and there is evidence before the court now that the property, number 17A has appreciated and is now worth something in excess of £400,000. Thus approaching three quarters of the difference between £190,000 and, shall we say, £400,000 will have to be paid to the Bank of Scotland. Thus we are again in a situation which does not make the problem being presented to the court an easy one to solve.

Now, one additional matter has also complicated matters, and that is this: that at a number of hearings where Mr. Owo−Sampson sought to have the bankruptcy order against him annulled, counsel then appearing for the bank relied upon pre−Insolvency Act 1986 law which has subsequently been held to be no longer applicable, making it even more difficult for Mr. Owo−Sampson to advance his application for annulment. I refer in particular to the decision of the Court of Appeal in the case of Platts v Western Trust & Savings Limited [1996] Butterworths Personal Insolvency Reports, 339. The authority which had previously been relied upon was a case of Re Button [1905] 1 KB, 602. It was held that the Re Button line of authorities no longer applied.

The decision of the Court of Appeal is important in this regard in so far as it relates to costs. They ordered that there should be no order as to costs between Mr. Owo−Sampson and Barclays Bank, either in the Court of appeal or in the court below, that being before His Honour Judge McGonagle. But under the rules, the trustee in bankruptcy was required to attend and did attend, though taking a neutral attitude, through counsel, Mr. Allison, and he is here before me now.

And all that the Court of Appeal did in regard to the trustee in bankruptcy's costs was to order that they should be paid as an expense of the bankruptcy. Thus, if that order is to remain, not only when any application to annul is considered will the court have to be satisfied that Barclays Bank are paid in full: it also has to be satisfied one way or another that the bankruptcy liabilities will also be duly discharged, and those costs have now achieved a considerably prohibitive figure. On today's basis they amount to some £77,700, together with Department of Trade fees as well, of slightly in excess of £20,000 on top of that. Thus, we are dealing inevitably with considerable sums of money which, one way or another, the court has to be satisfied will be duly discharged.

Part of the appeal in this case is based upon the fact that Mr. Registrar Jacques in his judgment concluded that it was very difficult to see who should pay those costs other than Mr. Owo−Sampson. On his behalf Mr. McPherson has sought to persuade me that that is not right, and that in realistic terms Barclays Bank ought to be paying at least a large proportion of those costs by reason of the fact that they relied upon the Re Button line of authorities, and that the bankruptcy order, but for that line of authorities, would have been annulled at a much earlier date. I shall have to come and deal with that particular argument in due course. It was submitted to me that this was in many ways the key to the appeal and to the success and/or failure of the appeal.

This being an appeal before me, I remind myself of the fact that on any insolvency appeal − whether as an appeal from a bankruptcy registrar or district judge − to the judge, the nature of the appeal is that it is a true appeal. It is not a case where the trial judge conducts a re−hearing. Thus, I cannot interfere with the bankruptcy registrar's decision unless I am satisfied of a number of possible matters.

Let us examine his decision in detail. He set out in paragraph 2 of his judgment certain relevant dates which I need not repeat. He then deals with what was decided, accepted or noted by the Court of Appeal, and these were five particular points: firstly, that Mr. Owo−Sampson did not, when his petition was presented advance before the registrar hearing the bankruptcy petition, any argument that Barclays were fully secured by its charging order over number 17A. The Court of Appeal accepted that he did not produce in his evidence a valuation of number 17A in the sum of £210,000 as at June 1998 until maybe the hearing of February 2002, maybe somewhat earlier than that, maybe the registrar got that particular date wrong. Thirdly, (?) that the registrar, Mr. Registrar Baister, had been right to make the bankruptcy order which he did make in June 1998 on the evidence then before him. Fourthly, that if Mr. Registrar Baister had been wrong to conclude that the bankruptcy order ought not to have been made and His His Honour Judge McGonagle had similarly been wrong to dismiss the appeal and, fifthly, that Mr. Owo−Sampson had not made any payment towards the discharge of his indebtedness to Barclays Bank. Of course, once he becomes a bankrupt his ability to make any such payment is, for very obvious reasons, severely curtailed.

The registrar plainly accepted that this was a matter which depended the exercise of discretion. By the time the matter had come before him, as it did, it has to be remembered that time had gone by. The matter came before him on 12th August 2003 in relation to a bankruptcy order made in June 1998; thus in excess of five years had gone by. And what had happened during those five years included the fact that Mr. Owo−Sampson has obtained his automatic discharge from bankruptcy in the usual way.

Thus the decision that Mr. Registrar Jacques was facing was not a straightforward decision: this was not an application to annul that was made and heard and determined shortly after the making of the bankruptcy order. And that fact has to be borne in mind and was borne in mind by Mr. Registrar Jacques.

The Registrar then noted that the Court of Appeal had directed, at least opined − let us put it that way − that as to the method in which the discretion should be exercised, would depend to a considerable extent on whether Mr. Owo−Sampson was able to satisfy the court, ie the Registrar, that he would be able to discharge his debt to Barclays Bank and to meet all his other liabilities if his bankruptcy order was annulled.

It has been presented to me by Mr. McPherson that the very fact that the bankruptcy order ought not to have been made in the first place when it was made is, by itself, a powerful reason for the court exercising its discretion in Mr. Owo−Sampson's favour under section 282 sub−section 1. I do not think that that is a correct submission of law. Least of all is it a correct submission of law in a case such as the present one where five years have gone by. There is, quite frankly, no burden of proof in regard to how the court should exercise its discretion, save to say this: that the bankrupt must demonstrate to the court that it is right in all the circumstances to grant the annulment. That is not a burden of proof: that is simply meaning this −− that the court will not exercise its discretion to annul unless it is satisfied that it is doing the right thing −− and doing the right thing by whom? The answer must inevitably be as the Court of Appeal has said −− the right thing by the creditors for whose benefit the bankruptcy order has been made. A bankruptcy order is a class remedy which is given to a creditor for the benefit of creditors generally, and thus the court has to be satisfied when it exercises, if it chooses to exercise the power to annul, that the creditors will not be prejudiced by the exercise of that discretion.

Now, Mr. Owo−Sampson says, and fairly says, that he has two major ambitions which would be assisted by an annulment of the bankruptcy. One is that he wishes to preserve number 17A as a home for himself, and in particular for his two young children who are still of school age and attend a school in the locality of that home. His second, entirely laudable, aim is to go back to practising as an accountant, which he is at the moment prevented from doing by reason of the fact that he is now a discharged bankrupt.

One of the great difficulties which he has is obtaining proper professional insurance cover, which I can well understand may be difficult if not impossible for him to obtain as a discharged bankrupt. But the evidence in regard to that seems to me to be sketchy in the extreme and to consist of little more than an assertion of such by Mr. Owo−Sampson. The assertion may well be correct, I am not saying it is not.

Let us look, now, at the reasons Mr. Registrar Jacques gave for his decision. In paragraph 7 he sets out Mr. Goodison's argument (he being counsel who has represented the bank before me and before the registrar). He contended on the bank's behalf that annulment was not likely to be the best means of ensuring that Barclays debt was paid, and it might result and would be likely to result in unsecured creditors not being treated fairly.

Let us look at what would happen if annulment is not granted. First of all, one has to bear in mind that the trustee in bankruptcy has obtained an order for possession of, I think, number 17A or at least for the sale of number 17A, and that sale will take place under the supervision of either the Bank of Scotland (the mortgagee having a first charge); or under supervision of Barclays Bank, having the benefit of its charging order; or by the trustee in bankruptcy. And the net proceeds of sale would be used to discharge, first of all, the costs and expenses of the sale and of any litigation. Secondly, to pay off the debt secured on the property to the Bank of Scotland. Thirdly, to pay off the charging order − or at least that part of the charging order in favour of Barclays Bank − which has been valued by it as covered by the security. Any balance thereafter would be distributed pari passu to Mr. Owo−Sampson's unsecured creditors. That is always, of course, assuming that there is such a balance to distribute between unsecured creditors as a result of the sale −− and who knows until the property is put on the market what particular price it would actually sell for? Certainly it would be in the nature of a forced sale and one knows from bitter experience that forced sales do not tend to achieve as favourable a purchase price as a sale between willing vendor and willing purchaser where vacant possession is given on completion and where the vendor actually goes out of possession immediately before completion.

Thus, failure to annul the bankruptcy order would result in Mr. Owo−Sampson certainly losing his home where he has been living for the past five years and more, where his children have been living, and would undoubtedly result in what would be expected to be produced and what was intended to be produced by the making of a bankruptcy order.

If the bankruptcy order is annulled, what will happen? Well, before me there was an application − a very late application − to have admitted evidence which it was intended would show that Mr. Owo−Sampson would be likely to be able to raise £325,000 by means of a mortgage loan, which would be obtained on his behalf through the good offices of Towry Law Insurance Brokers; that being on the basis that the property is itself now worth £425,000. One might wonder how that would be obtained, but I do not think I need go into the matter in any great detail, because it seems to me quite plain that on the basis of the evidence that has been put before me and in particular that from a Mr. Duncan Howell who is a mortgage broker with Towry Law Mortgage Services Limited, that that could be obtained if a charge could be given over 17A Glebelands Avenue. But that, it does not seem to me, is likely to lead in any way, shape or form to a payment in full of the debts and liabilities currently owed by Mr. Owo−Sampson.

In that regard I am paying no regard whatsoever to the incidence of any costs which have been incurred by or on behalf of the trustee in bankruptcy. That is made up in this way: what has to be paid, one can ask perfectly properly, to the Bank of Scotland? It is owed £140,000 by way of capital. It is owed 71% of any appreciation in capital value over and above £190,000. Thus it seems to be common ground in the hearing of this appeal that in order to discharge the Bank of Scotland's liability, there will be a sum in the region of £300,000 and more, slightly more, needed. If only £325,000 is going to be raised, one knows that, let us say, £25,000 is left. Barclays Bank were owed − way back in 1998 − £27,483. They will no doubt have been charging interest over a period of five years at a rate governed by some particular arrangement. Whatever it is, the interest will be considerable. There is simply not enough money in that way to pay off the Bank of Scotland and to pay off Barclays Bank, let alone pay off the other unsecured creditors. There is £20,000 owing to the Abbey National and in excess of £1,000 owing to Barclaycard, which is not covered by the charging order. Thus, a mortgage offer of £325,000 if it could be obtained would not get Mr. Owo−Sampson to the position where he could satisfy the court that (as Carnwath LJ put it) he would be able to satisfy the petitioner and meet his other liabilities. No matter how one apportions the trustee in bankruptcy's costs, that simply in my view does not deal with the problem at all. Because, if the situation is that Barclays have to pay the trustee some money, some part of the money, and it cannot be the whole of the trustee in bankruptcy's costs but just part of them, that does not in any way impact on the sum which I have just carried out.

Thus, the fact that maybe the DTI fees will be repaid does not assist Mr. Owo−Sampson to discharge his secured liabilities, let alone his unsecured ones, and thus it seems to me that in these circumstances the question of the incidence of costs as between the trustee in bankruptcy and Barclays Bank, or Mr. Owo−Sampson is not going to make the matter any better for Mr. Owo−Sampson.

It may be that Mr. Registrar Jacques, when he said that it was not immediately apparent to him why Barclays Bank should be ordered to pay those costs, did not have in mind the problems which were caused by the bank relying on Re Button. But at the end of the day that is a matter which I am simply going to say nothing more about, because the trustee in bankruptcy is here to represent the interests of creditors generally. If he wishes to make such an application against Barclays Bank, then he can do so on notice and another judge can deal with it. But, it simply does not advance Mr. Owo−Sampson's appeal at all.

The registrar in paragraph 9 of his judgment sets out the figures which, because they include costs as well, make it even more impossible for Mr. Owo−Sampson to discharge all his liabilities if the court had granted his annulment. And in paragraph 10 of his judgment, Mr. Registrar Jacques said on the basis of his foregoing figures it was clear that Mr. Owo−Sampson will not be able to satisfy Barclays and meet his other liabilities, which suggests that I ought not to annul the bankruptcy order. In paragraph 11 he says,

The registrar concluded that that might not happen if he were to annul the bankruptcy order. He feared that the trustee's costs might not be paid if that were to happen. He refers to Mr. Owo−Sampson's failure to make any payment in regard to Barclays debt. Well −− perhaps that can be criticised on the basis that for most of the six year period which he was dealing with, Mr. Owo−Sampson was a bankrupt and could not make such a payment. He refers to apparent hostility which he was able to infer on the part of Mr. Owo−Sampson where he wished to frustrate Barclays' attempts to enforce its charging order. Well, is that any different than anyone else who is likely to have their home sold over their head? I do not know. What is quite plain, apparently, is that there was no cross−examination on affidavit evidence at any time before Mr. Registrar Jacques. He then refers also to Mr. Owo−Sampson's conduct in continuing to pay Abbey National for a short period after the making of the bankruptcy order, creating a preference, he concluded, that that might present a risk of a future preference of some creditors, in particular Abbey National, at the expense of others. It may be that there is such a risk, but again, in the absence of cross−examination, I find it difficult to see how that could really influence the decision one way or the other. In the end it seems to me in reading the registrar's judgment as a whole, he decided not to grant the annulment because he was not satisfied that by doing so Barclays would be paid in full and the other unsecured creditors would be paid in full. And by referring to Barclays being paid in full, the Court of Appeal, I would have thought, was referring to the unsecured part of Barclays' debt, which was the petition, the £27,000−odd being paid in full.

Having carefully considered this matter, I cannot see that the registrar exercised his discretion in any way in this case which is such that I would wish to make any criticism of it at all in regard to the essential matters in which that discretion has been exercised. It seems to me that whilst it might be said that the registrar did take into account those matters which I have mentioned as being set out in paragraph 11 of his judgment, and may well have placed too great an emphasis on those events, that does not make the matter any different. Whether or no the trustees' costs will be paid must be a matter which could not be dealt with by the registrar with any certainty at that stage in the absence of an application (and a contentious application at that) as between the trustee in bankruptcy and Barclays Bank as to whether or not Barclays should pay any of those costs. And who is going to fund that application, one asks? Trustees in bankruptcy do not have a magic pot at the end of any rainbow which they can dip into to pay costs to have matters determined. Anything that has to be determined is determined out of the funds which they hold as trustee in bankruptcy.

And what funds does the trustee in bankruptcy currently hold? The answer is, without the sale of number 17A it does not hold those funds ... it does not make much difference. Whether or not the trustee in bankruptcy chooses to expend them in that way is a matter which must peculiarly lie between him and the creditors' committee of inspection, if there is one. And I see no reason why I should be pushing the trustee in bankruptcy and the creditors into yet further litigation with Barclays Bank if they do not wish to enter into that litigation. It is no function of this court or of the court below.

It may be that the failure to make a payment for six years is not as bad as the registrar said. It may be that the hostility between Mr. Owo−Sampson and the bank is not a sufficient reason to add significantly to whether or not an annulment order is granted. It may be that the payment may, in the past, shortly after the making of the bankruptcy order to Abbey National, can be properly explained and not be subject to criticism. All that is a matter where it may be, and certainly is the case, that the registrar when he explained his reasons seems to have in my view placed too great an emphasis on those matters. But at the end of the day the crucial reason for failing to grant an annulment was that the registrar was not satisfied that if he did so, the bank would be paid and the unsecured creditors would be paid. And unless Mr. Owo−Sampson is able to demonstrate that that would have been the case, the application inevitably failed and the registrar was right in my judgment to conclude that that had not been demonstrated and that the application must therefore fail.

In those circumstances, however one criticises some of the no doubt extemporary comments that were made by the registrar in giving his judgment, they do not alter the real gravamen of the judgment which was right in my judgment; and had the matter come before me afresh, I think I would have exercised my discretion in precisely the way in which the registrar exercised it below. This is not a case where the discretion has been exercised in a way that is in any sense wrong, however narrow the band that one might wish to be where reasonable disagreement is possible. However narrow on the facts of this case, the registrar's conclusion seems to me to come well within that ambit, and if indeed it is a generous ambit, as Lord Fraser put it in G v G, it must be even more so than ever.

In those circumstances it seems to me that this appeal must fail, and for those reasons I propose to dismiss the appeal.